March 17 (Bloomberg) -- The Standard & Poor’s 500 Index
formed a hammer-shaped candlestick pattern this week, and more
than half the stocks in the equity benchmark fell to 20-day
lows, technical signals that the market may rebound.

On March 15, the index traded 2.1 percent below its opening
price before rallying to close near the day’s initial level, a
hammer-shaped candlestick that suggests the market may be in the
process of forming a bottom, said Arthur Huprich, an analyst
with Raymond James & Associates Inc.

The same day, 56 percent of S&P 500 stocks slipped to their
lowest levels in the past 20 days, the highest proportion since
August, Strategas Research Partners said. That indicator shows
the retreat since February may have run its course, as readings
above 50 percent have preceded gains in the past, said
Christopher Verrone, lead technical analyst at Strategas, who
cited data going back to 1973.

“The integrity of the uptrend of the March 2009 low is
intact,” Verrone said in an interview. “So we’re approaching
this much like we approached every pullback over the past two
years. The dip should be bought.”

The S&P 500 has dropped 6.4 percent from a 32-month high on
Feb. 18 amid concern rising energy costs will curb the global
economic recovery and Japan’s nuclear crisis will worsen. The
market entered its third year of bull market this month after
the S&P 500 rallied 95 percent in the first two years from a 12-year low on March 9, 2009. The index yesterday dropped as low as
1,249.05 before paring losses to close at 1,256.88.

‘One Hurdle’

The formation of the hammer pattern on March 15 suggested
that the market had “cleared one hurdle, namely the
establishment of a ‘low,’ ” Huprich said in a report dated
yesterday. Whether this marks a turning point depends in part on
“news driven events such as Japan and the Middle East,” he
wrote.

There had been 49 occasions when the proportion of stocks
making 20-day lows exceeded 50 percent of the S&P 500 since
1973, Strategas data shows. On average, the benchmark index rose
1.4 percent in the following month and was 7 percent higher
three months later. The last time when more than half of S&P 500
stocks reached 20-day lows was on Aug. 24. The index bottomed
two days later and rallied every month except November.

“There is a considerable cluster of support in the 1,200
to 1,240 neighborhood that even we break through 1,260 here, I
think the market finds some meaningful support in that
neighborhood,” Verrone said.

Technical analysts study charts of trading patterns and
prices to predict changes in a security, commodity, currency or
index.